A crisis with global recession written all over it
From 2000 onwards, prices have headed upwards and have gone from $20 a barrel to near $140 today.
Just recently executives from the five biggest international oil companies were hauled before the US Congress to explain the massive price hikes and they claimed they were as much victims of high oil prices as US consumers
The executives got short shrift from the US Senate who showed little sympathy.
They were before Congress for the second time this year and executives from Exxon Mobil Corporation, Chevron Corp and the three other big energy companies were asked to explain their swelling profits as gasoline (petrol) prices headed towards record highs of $4 per gallon (equivalent to €2.5 for 3.8 litres).
Under oath before the Senate Judiciary Committee, they stuck to their mantra that markets for crude oil, not profiteering at the pumps, was the reason behind high prices.
“As repetitive and uninteresting as it may sound, the fundamental laws of supply and demand are at work,” said an exasperated John Hofmeister, president of Shell Oil, the US subsidiary of Royal Dutch Shell.
Committee chairman Senator Patrick Leahy asked the executives to disclose their 2007 salaries, and at least one was unable to answer, to the annoyance of the committee members.
That’s the kind of scenario being played out in the US as shocked citizens and politicians come to terms with the reality that oil prices have hit levels they never thought possible.
Surging demand in China, India and other developing economies have put enormous pressure on supplies, adding to pressures on the US and European economies, already struggling with a housing crisis and global credit crunch.
Prime drilling acreage in Alaska and the outer continental shelf off the US coast are off-limits for good environmental reasons, placing the big oil companies like Shell and Exxon at a growing disadvantage to government-owned companies like Saudi Aramco and Venezuela’s state firms.
Whatever dubious roles the oil giants played in the past, this new phenomenon is being driven by the undeniable reality of oil demand rising faster than supplies.
At this stage most of the oil reserves are controlled by OPEC, Russia and Venezuela, while the Canadian oil sands and other sources play a critical but lesser role in meeting daily oil needs. On a daily basis about 75 million of the 84m barrels of oil consumed daily across the globe comes from the Middle East, so every move OPEC can have serious implications for us all.
There is no panacea to this emerging crisis.
OPEC has limited refining capacity and refineries are limited to processing only certain types of oil which vary significantly. In effect they are limited in the type of oil they can refine.
This is a crisis with global recession written all over it.
Independent analysts, not linked to the banks, fear the worst. Colin Campbell, of Peak Oil notoriety, is one such analyst. He warns prices will go as high as they have to, to bring stability back to supply and demand.
If that means the cost of oil per barrel rising to €250pb, then that’s the scenario the world is facing..
Despite Washington’s efforts to drag the oil companies into the controversy, they are missing the point.
Today the oil sector is discovering just one barrel of oil for every four being consumed daily. In other words supplies are running down while global demand is continuing to drive prices up.
Speculation is part of this, but it is not the basic cause of rising oil costs.
Campbell argues we may be facing a long recession — of a decade or longer — as the impact of this dramatic change is universally felt.
